Key Takeaways
- Millennials represented around 45% of all purchase loans, up from 42% the same month in 2016 .
- Paying down small debts, aiming for a significant down payment, and avoiding private mortgage insurance are the top tips for millennial homebuyers
- On a $100,000 loan, a homeowner could be paying as much as $1,000 a year for private mortgage insurance (or $83.33 per month) assuming a 1% PMI fee.
Are you a millennial who wants to buy your first home? By following these tips, it might be easier than you think. If you yourself are a millennial homebuyer or your know a millennial who wants to become a homeowner, take note of this advice!
A recent study performed by CNN found that “Millennials are the largest group of homebuyers.” In January, Millennials represented around 45% of all purchase loans, up from 42% the same month in 2016; which proves that it is possible to own your home as a millennial. While these statistics sound favorable for millennials, the struggle is still real. With interest rates on the rise, jobs being harder to find, and student loan debts growing, millennials are needing a little extra help. Luckily, we’ve got tips that will help your millennial homebuyer succeed.
Tips For Millennial Homebuyers You (Literally) Cannot Afford To Miss
Just because you’re in your twenties or thirties, don’t assume you won’t be able to buy a home. While homeownership is a big responsibility, a long process, and a lot of money, there are ways to turn your American dream into a reality. Use the tips below to get yourself closer to buying your first home:
Get your finances in check by paying down debt and building a savings
The first step to deciding whether or not you are ready to buy a home (especially for millennials) is checking in on the state of your finances. Unfortunately, the millennial generation has been burdened with excessive student loan debt, which makes it difficult for them to afford a down payment. Not to mention the fact that millennials have also been confronted with an over saturated job market, making it difficult to find, keep, and grow in professional roles. So if you’re a millennial (or you know a millennial) struggling with the above, time to pay attention.
Paying off small debt, even if it’s just a little bit at a time, is important for those 20-somethings’ who want to be approved for a mortgage loan. Chances are, you have either student loan debt accruing, car payments to make, monthly bills to pay, credit card balances, or maybe a combination of all four. In this day and age, that’s normal! And it can be taken care of so long as you have a plan, stick to a budget, and never (ever) miss a payment!
Now, never missing a payment sounds somewhat intimidating.
“How can I promise that i’ll always remember every bill every month?” is most likely a thought scrambling through your head.
Fortunately, with today’s technology, it is easy to set up online automatic payments for everything from your electric bill to your Target Red Card. All you have to do is…
- Create online accounts for every monthly payment you make.
- Choose the “go paperless” option.
- Set up a recurring monthly payment.
- Select the “minimum payment” option. (While it might sound contradictory to only pay the minimum amount, this specific goal is not to reduce your debt as much as it is to help you avoid missing a payment. You should of course strive to pay more than your minimum payment each month; however, if you always pay at least the minimum amount each month, your credit score won’t get dinged with a missing payment.)
Create a budget that outlines your income to debt ratio and set calendar reminders for each day you have to make a payment or receive a paycheck. Next, write down every monthly expense you have. Whether it’s groceries, pet bills, or entertainment, write it down and work it into that budget. Be sure that your budget is well organized, and even more importantly, realistic. Once you have successfully stuck to your budget for six months, reevaluate your finances.
Mind your due diligence and use a Realtor
Minding due diligence is an important step in any real estate undertaking, and is especially important for millennial homebuyers. Millennials are known for being great “multi-taskers” and for getting work done fast. While these are both favorable traits, they can actually hinder the home buying process. Taking your time is key if you truly want to find a home that you will both love and that will help you build significant equity.
In this day and age, obtaining information about essentially everything is simple. We have the world at our fingertips and basically instantaneously. Because of this, it can be easy to make hasty decisions. Don’t feel pressured by “hot market” statistics or competitive bidders. Do your own research and take your time.
One way to become better acquainted with your market is to work with a licensed real estate agent. While information might be easy to obtain, experience is not; which is the one thing a real estate agent can give you that the internet can’t. The right agent will be able to find the best homes at the best prices that meet your needs (and at no cost!) Millennial homebuyers are most likely newbies, and an agent can better navigate through the buying experience. If you want someone who will negotiate with sellers for you and who can explain all the real estate lingo in laymen’s terms, you won’t regret it.
Avoid Private Mortgage Insurance (If you can help it) and aim for a sizeable down payment
If you are a millennial homebuyer, or any homebuyer for that matter, you should ideally try and save up enough money to pay a 20 percent down payment on the home you want to buy. While there are loan options available to first time homebuyers, paying a sizable down payment will bring down your monthly expenses, and more importantly, help you avoid private mortgage insurance (PMI)
Unfamiliar with the concept of PMI? Here’s a quick refresher: private mortgage insurance is a secondary loan most traditional lenders will require homebuyers who are unable to put down a 20 percent down payment to have. The idea is that homebuyers who can’t afford a large down payment are more likely to potentially default on their note; and PMI hedges against that.
The biggest reason you’d want to avoid paying into PMI as a millennial homebuyer is the fact that you are literally throwing money away. Now keep in mind, sometimes PMI is the only option for some homeowners, and that’s okay. However, if you can somehow evade the additional payment, do it. According to Investopedia, private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount on an annual basis. On a $100,000 loan this means the homeowner could be paying as much as $1,000 a year, or $83.33 per month – assuming a 1% PMI fee. That’s a lot of money to be paying, especially since you’ll never see it again.
If PMI is your only option, talk to your CPA about how you can deduct the cost and how you should best budget to pay off the debt as soon as possible.
Got more tips for millennial homebuyers? Share them in the comments below:
